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St. Paul Croatian FCU fraud may cost NCUSIF 170M
ALEXANDRIA, Va. (10/14/10)--The National Credit Union Administration (NCUA) Office of Inspector General (OIG) revealed today that St. Paul Croatian FCU was catapulted into a liquidation by fraudulent loans, some allegedly masked by the credit union’s CEO. The IG’s material loss review of the Eastlake, Ohio. credit union noted that the NCUA projected an estimated loss of $170 million to the National Credit Union Share Insurance Fund directly attributable to the liquidation. The IG review noted that as of Dec. 31, 2009, the credit union had approximately $238.8 million in total assets and that St. Paul had a “substantial majority of its assets in loans that were supposedly secured by members’ shares.” However, an examination at that time found the majority of the loans were not actually share-secured and a that number of them were “allegedly fraudulent.” “The NCUA also found that St. Paul’s chief executive officer manipulated loan records and masked the suspected loan fraud by constantly refinancing certain loans or making advance payment on those loans,” the report said. The review also said that the IG determined a number of failures regarding the credit union management’s obligations to implement proper internal controls. The review said, specifically, management did not:
*Ensure adequate internal controls were in place; * Ensure adequate policies were in place and adhered to; and * Resolve prior examiner findings in a timely fashion.
In fact, the review indicated, the state of management was so abysmal at the time of the liquidation that once the credit union was placed in conservatorship and the CEO was removed, the remaining nine-person staff wasn't familiar enough with operations to run the credit union. It was quickly liquidated soon after. The IG review also took NCUA examiners to task noting, in part, that the examiners “did not adequately evaluate the risks to St. Paul operations.” According to the IG, the examiners did not thoroughly evaluate the credit union’s internal controls when assessing transaction risk, ensure credit union management took corrective actions when failures were documented, nor did they expand examination procedures when “red flags” indicated higher risks St. Paul Croatian was chartered in 1943 and had almost 5,400 members at the time of its liquidation.
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